Motilal Oswal Securities has a buy call on UPL with a target price of Rs 924.The current market price of UPL is Rs 781.30.Time period given by the brokerage is one year when UPL price can reach the defined target.
Investment rationale by the brokerage:In a sweet spot post Arysta amalgamation: We note that both UPLL and Arysta complement each other well in terms of their crop portfolio and geographical presence.
In Brazil, UPLL primarily engages in soybean and maize (together account for 63 per cent of the countrys total plantation area) and Arysta in sugarcane and cotton (19 per cent of the countrys total plantation area).
Moreover, UPLL has a strong presence in fungicides, while Arysta has a robust platform of bio solutions (number 2 globally in bio stimulants) and seed treatment in Brazil.
The combined entity, thus, would become the fifth largest agrochemicals player in Brazil, with nearly 10 per cent market share (v/s UPLLs current market share of 4.5 per cent).Brazil to do the trick for LATAM: Brazilian farmers are enjoying strong demand for soybean, primarily due to the tense ties between the US and China.
According to industry sources, China accounts for more than 60 per cent of the soybean traded worldwide.
With China imposing 25 per cent import duty on soybean from the US, the formers soybean processors are pumping record volumes of Brazilian cargoes for shipment (12-14m tonnes for Oct-Nov 2018 v/s 9m tonnes in Oct-Dec 2017).
This apart, Brazils producers are selling soybean at a premium soybean that were to be loaded in August fetched USD2.21/bushel more than Chicago futures as on July first week the widest gap since 2014.
This premium had more than tripled since end-May18.New launches and innovation to be at the heart of the strategy: UPLLs focus in Brazil is to counter the Asian Rust pest, which has the highest market size (estimated at USD1,817m) among all pests.
The companys newest product Tridium (mixture of mancozeb, tebuconazole and axozystrobin) is a step up to the value chain of mancozeb and acts on several points of the fungi, making the resistance difficult.
Where Unizeb Gold (brand of mancozeb) is sold at nearly USD4 per unit in Brazil, Tridium fetches a realization of USD8-10 per unit.
Going forward, UPPLs strategy would be to seek formulations that are a combination of products and already available AIs to create a unique product proposition.